In a one-day special session Friday, Iowa’s Republican-led Legislature passed changes to state tax incentives aimed at drawing a $15 billion Mesabi Metallics steel plant to southeast Iowa.
The revisions to the Major Economic Growth Attraction program, or MEGA, would allow the state to offer tax credits worth up to 10% of the investment into the plant over 10 years.
Mesabi Metallics wants to construct the plant in Lee County to make steel from iron ore pellets sourced from the company’s mine in Minnesota’s Iron Range. The company says more than 6,000 construction workers would build the Iowa plant and it would employ more than 1,700 workers when it is operational.
Rep. Carter Nordman, R-Dallas Center, celebrated the passage of the bill in the Iowa House.
“This is by far the largest economic development opportunity our state has ever seen. When we pass policies in our Republican agenda to cut red tape, lower taxes and make Iowa’s business climate competitive, projects like this are exactly the goal.”
Some Democrats called for the process to slow down. The project was first announced in a ceremony at the White House on Monday. Sen. Janet Peterson, D-Des Moines, said Iowans have not had enough time to learn about the scope of the project or discuss it with their representatives.
“Why are we giving a handout to a foreign corporation instead of focusing on our neighbors and on Iowans’ needs?” Peterson said, referring to Mesabi Metallics’ parent company, the India-based conglomerate Essar Group. “How many Iowa businesses have operated in our state for years, even decades, and not had anything close to the assistance being offered here today?”
The bill passed both chambers and was signed into law by Gov. Kim Reynolds Friday night. She called the proposed project a transformational opportunity for the state.
“By enacting reasonable and limited changes to the MEGA program, we’re clearing a path for Mesabi Metallics to make Iowa the future home of the largest steel investment in American history,” Reynolds said. “And by helping reshore American manufacturing, this project will reduce our dependence on foreign supply chains as well as strengthen our national security. And Iowa is going to be a part of that.”
The law passed by lawmakers (HF 2801) doubles the investment incentive for a project awarded under the MEGA program. Instead of a tax credit of up to 5% over 5 years, a single project could qualify for a 10% tax credit over 10 years. The MEGA program also allows for sales tax refunds during construction and a withholding tax credit against employee payroll.
The final incentive package is determined by the Iowa Economic Development Authority Board.
A Legislative Services Agency analysis examined the revenue impact of the combination of tax credits available through the MEGA program for a qualifying investment estimated at $11.15 billion. It found the revised program would reduce revenue by an additional $575 million compared to the existing tax credit structure from fiscal year 2029 through fiscal year 2041.
The proposal earned some crossover votes from Democrats and Republicans. In the Iowa House, two Republicans voted against the proposal while 16 Democrats voted in favor.
All Democrats and six GOP members voted against it in the Senate, including Sen. Jason Schultz, R-Schleswig. Schultz told other lawmakers on the Senate floor that he is worried about what the tax credits may cost the state.
“I’m worried about our budget. I’m worried about the situation we’ll find ourselves in in January,” Schultz said. “I did not foresee a project like this coming forward, but I am concerned about transferring budget authority — expenditures counting down the revenue we have available — for a project that popped up.”
Although U.S. Treasury Secretary Howard Lutnick seemed to indicate in Monday’s Oval Office announcement that local incentives would not be needed for the project, Sen. Dan Dawson, R-Council Bluffs, said that was not the case. He offered an apology to the White House.
“Whether there was a misunderstanding communication to the White House or they were misled, those points — as proven by today — were inaccurate. Otherwise we would not be here today,” Dawson said. “So for that I would like to apologize to the Trump administration on behalf of the state of Iowa.”
Dawson questioned the fairness of relying on taxpayers statewide to support tax credits concentrated on a project in one corner of the state. He also claimed the governor’s office held negotiations with Mesabi Metallics outside of talks with the IEDA.
“As the Ways and Means chair of this chamber, I, in good conscience, cannot support giving any single corporation and their financiers $1.2 billion in refundable and transferrable tax credits to what simply amounts to the largest corporate giveaway in the state of Iowa’s history,” Dawson said. “I choose conservatism, not corporatism.”
House Speaker Pat Grassley pushed back on Dawson’s alarm over the budget impact of the MEGA program incentives. He said the steel plant would give an economic boost to a part of the state that needs it and will benefit existing Iowa manufacturers.
“I think this is pretty typical. When Sen. Dawson doesn’t come up with an idea, he doesn’t think it’s a good idea,” Grassley told reporters after the end of the special session. “I think that this was well vetted. I think you saw a significant amount of support here in the House that shows that we think this project can have some tremendous opportunities for not only southeast Iowa but what does this mean for the state altogether.”
Grassley pointed out the original MEGA program passed with broad bipartisan support.
“If individuals all of a sudden today decided that the MEGA program is something that just doesn’t work because of the impacts on the budget, I’m not sure where everyone was a few years ago when we passed these bills overwhelmingly,” Grassley said. “Yes, it’s a bigger project than maybe what we anticipated, but I would say that’s more investment for Iowa. That’s something that we should be promoting.”
The MEGA amendments passed just over one month before Election Day. Rep. Elinor Levin, D-Iowa City, questioned the timing. She said she supports creating new jobs but suggested the introduction of the massive project so close to November could be designed to influence voters.
“I come here during session and I come when called for special session to try to do good things for Iowans, not to sign off on a campaign ad for Rep. Miller-Meeks,” Levin said.
First District U.S. Rep. Mariannette Miller-Meeks is in a tight race with Democrat Christina Bohannan in the district where the steel plant would be located.
Democratic Rep. Josh Turek, D-Council Bluffs, who is running for U.S. Senate, and Rep. Lindsay James, D-Dubuque, who is running for the 2nd House District, voted in favor.
Why Iowa?
The MEGA program sets guidelines for the state to negotiate a final incentives package with Mesabi Metallics. The final package must be approved by the Iowa Economic Development Authority Board. The Des Moines Register reports a preliminary agreement between the state and the company that was shared with lawmakers offered $1.36 billion dollars in tax incentives. That includes $1.1 billion in investment tax credits, $154 million in sales tax refunds and $60.5 million in withholding tax credits.
Mesabi Metallics CEO Joe Broking spoke to subcommittees in the House and Senate about the project. He told the House panel that locating in Iowa is cost efficient because it is close to its mining operation in Minnesota and provides easy access to shipping by rail and on the Mississippi River.
He said the company would plan to hire as many local workers as it can, and would work with Iowa universities and community colleges to train others.
“This is not a traditional steel mill. This is the next generation of advanced manufacturing and advanced industrial process manufacturing,” Broking said. “It’s something that this country desperately needs, and we’re committed to make it happen again right here in the state of Iowa.”
In a Senate subcommittee, Broking was asked what Mesabi Metallics would do if the Trump administration’s tariffs on imported steel were reduced or eliminated.
“What happens when the tariffs go away?” asked Sen. Tony Bisignano, D-Des Moines. “What happens when that tariff mentality changes? What does it do to your competitiveness?”
Broking acknowledged that could happen. He said the company’s production process using ore from Minnesota and using electric-arc furnace technology in Iowa to make it into steel would be competitive with global producers.
“We need to compete. We need to compete with steel producers in China. We need to compete with steel producers in India — that frankly have had a cost advantage, a cost structure advantage, on us for decades,” he said.
IEDA Director Debi Durham told the Senate panel the special session came about in part after Mesabi said the initial 5% tax credit available in the MEGA program was not competitive with other states.
“We offered the maximum amount that we are to by code, and if that had been accepted we wouldn’t be here today, that is true,” Durham said.
Durham said she believes Arkansas is a competitor for the project, but the memorandum of understanding the state reached with Mesabi Metallics gives them 60 days to negotiate a deal. She said a proposal could go before the IEDA board as soon as November.
